Structured Trade Finance in Africa Rwanda Coffee and Tea Case Studies

8/3/2019 Structured Trade Finance in Africa Rwanda Coffee and Tea Case Studies

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Structured Trade

Finance -IntroductionPresented by

Gabriel Kivuti, WBI / ATI Consultant

[email protected]
mailto:[email protected]:[email protected]


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Agenda

1. Structured Trade Finance an Introduction

1. Structured Trade Finance an Introduction

2. Key issues in Structured approach

2. Key issues in Structured approach

4. Simulation Coffee financing Rwanda

4. Simulation Coffee financing Rwanda

3. Role of Export Credit Agency

3. Role of Export Credit Agency


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Definition

Structured Trade Finance is the means through which capitalsolutions (both funded and non-funded) are provided outside thetraditional fall back on securities the focus shifts from the strengthof the borrower to the underlying cash flow and structures that

enhance safe financing

Credit Enhancement / Securitization

Matching Client Needs to Solutions ina non traditional yet safe manner


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Traditional Credit Instruments

Charge on Landed Property;

Debentures (Senior / Supplemental / Mezzanine)

Specific Charge Asset;

Guarantees;

SBLC, Green clause LC..

EtcCompensatory effect on risk


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Structured Trade Finance

Credit enhancement instruments: Collateral Managers;

Warehousemen (Warrants / Warehouse receipts);

Traditional Insurance; Export Credit Agency underwriters insurance

Quality control;

Escrow account; Special Purpose Vehicles;

Tripartite, quartette, etc Agreements;

Use of Government, quasi government, industry selfregulators and other institutions

ExportC

redit

ExportC

redit

ExportC

redit

Agencies

Agencies

Agencies


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Progress Diagram

Understand the Industry& Client

Understand the Industry& Client Plot the sequence

Plot the sequence Mitigate the risksMitigate the risks

What industry;What positioning;5 Forces;What resilience?

TransactionCycle

Institutionalplayers;

Other marketInstruments


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Threat ofNew Entrants

Threat ofAlternatives

Threat of Existing

CompetitionThreatof

Regulatory

pre

ssure

ThreatofBuyer/

Se

ller

Pressure

Porters 5 Forces


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Traditional Transaction Cycle

Re-payment

Commodities

Factory

Export

Settlement

Corporate & Trade Finance

Securitysupport /traditional

Cash disbursement

RIWAC ?? 100%


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Cash Cycle Diagram

Re-payment

Commodities

Factory

Export

Settlement

Structured Trade Finance

Cash conversioncycle / AlternativeSecuritization

Cash disbursement

DiversionPriceQualityW-LossStorageInsurance Milling

Storage

QualityComminglingInsurance

Packing

StorageInsurance

Letter of Credit

Open Account

SettlementChanges-buyers mkt.Loss at sea. CIF, CF,

Document negotiation

Restrictions;Escrow accounts;

Shipping docs;


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Risk Mitigation Instruments

Warehousing

QualityAssurancePersonnel

Documentation

Institutionalplayers

Insurance

PriceMitigation

RIWAC..??


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Warehousing


Documentation


Insurance

PriceMitigation

Fixed price contractForward Contracts;

Futures;

Commodity SwapsOptions

(Calls and Puts)Collars


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Warehousing


Documentation


Insurance

PriceMitigation

SGS;

MITCHELCOTTS


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Warehousing


Documentation


Insurance

PriceMitigation

Tripartite Agreements to cover thirdParty obligations Responsibilities & obligations Limitations;FeesRecourse and Regulatory laws


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Structured deals

KPCU US$ 4 Million Assignment / Receivablesescrow a/crole of control Coffee Board

Structured Pre-shipment Financing Facility Use of

MOD and RBM {US$ 50 Million} Gold Loans Lending in Gold(derivatives)

PTA Bank US$ 500 Million CPP Facility / RBZ (US$ 90

Million) CP / Bond Faulu

Oil Financing

Tobacco for Oil Malawi ( Exchange Controls)


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Key Success Factors

Know your client Understand the entire cycle of eventsthe sequence

of events;

Identify the challenges and risksnothing is riskfree

Identify cross selling opportunities

Limited liability, partnerships, perfection ofsecuritiesannual review and validitychanges inthe environment


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Rwanda`Coffee Financing

C ff


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Coffee


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Rwanda Map

B i S i i R d


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Basic Statistics - Rwanda

GDP US$ 10 Bn; Per Capita US$ 1,300

Main Exports Coffee, Tea, (FOB US$73.5 Mn. )

Main Imports manufactured goods, foodstuffs,medicines etc.

Main trading partners South Africa, Congo,Tanzania, Kenya

Population 8 Million

M k ti St t R d


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Marketing Strategy - Rwanda

Rwanda Transaction

Duediligence

RiskManagement

SmartPartnerships

LeverageATIA


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Progressive Structures Development

Client Industry Counter-Party

Lending& exit

CapacityAbilityManagementRepayment

MaturityResilienceSWOT

TestedIntelligence on mkt.OpinionsTerms requested

Plotting theStructure;Exit strategies;Security;Insurance;Use of Industry

structures

Whi h C ff ??


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Which Coffee??

Robusta Cherries red picked;

Basic drying on sieve mats toreduce moisture;

Washing and separating intoFAQ + Qualities;

Testing for moisture content,and other inherent qualities acidity, sucrose etc..

Hulling machine 2 grades

Arabica Cherries red picked;

Pulping outer skin primarysocieties weight parchment(P1,2,3,4 PL) All in water

Fermentation removing sugar48-72 hours;

Washed then drying (sheddrying (no direct sun) 1

monthdepending sound) Samples 8.9 10.9%

Milling brown taster (second +third = green color)

Grading size (machine) +cupping (quality ) =

Testing for inherent features determination of quality

AA, AB, E, PB, TT, T, C (MBUNIH, ML)

C ff P d i C t i


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Coffee Producing Countries

Which countries really matter?


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Which countries really matter?

Price Volatility


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Price Volatility

Global Prices


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Global Prices

Structured Finance Pie Chart


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Structured Finance Pie Chart

Use ofGroupstrengths

Mitigants

SequenceOf

Events

IndustryClient

Other options

Th St t


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The Structure

RWANDEX

CBC

RWACOF

AGRICOF

Co-ops

Co-ops

VOLCAFE

SUCCAFINA

SUPREMO

Farmers

Sales of Coffee

To Exporters

SICAF

OCIR-CAFE

Farm-gate

C h fl


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Cash flow

Farmer Cooperative Exporter OCIR - CAFEExport

(Importer)

Boarder

Washing and sortingFAQ

Rfr. / $$$

$

Bank Financing Bank receipts$

$

Payment

Bank

Samples

Quarantine

Disbursement Risks


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Disbursement Risks

Diversion control through cash on delivery; Bank confirmations Partner with local Bank to enable you control this;

Price Put options on the determined NY price Purchase a collar! Maybe cost-free

Quality CM check on general conditions (level of impurities) Role can be outsourced from Credible Operative (or in-house!)

W-Loss storage and security

Storage Warehouse Manager / CM [SGS / Mitchell Cotts]

Insurance Commodity insurance cover against theft, fire

RiskMatr

ix

Factory Risks


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Factory Risks

Milling - minimal Storage covered by insurance

Quality - process

Commingling key conflict need to separate and control (obtainacknowledgement from other financiers)

Insurance fire, theft

RiskM

atrix

Export


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Export

Packing According to Quality and weight standards required Storage Transferred to OCIR-Caf

Insurance To Boarder with Tz or Ug.

Settlement

Changes-buyers mkt.- ?? ??

Loss at sea CIF, FOB Terms of Export

Repayment Risks


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Repayment Risks

Restrict Negotiation; Assignment of Receivables;

Traditional bank securities charge, debentures, negative

pledges . Escrow accountnominee bank / exchange controls?

Change in financial position of buyers?

Rwanda Structure


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Rwanda Structure

Collateral Manager;OCIR- Caf Confirmation and retention;

Assignment of proceeds (buyers)

Price derivative (collar)

Insurance on goods (fire / theft)

Loan management partner / agent commercial bank;

Political risk cover from ATI;

Credit risk cover from ATI.ATI / OECD Reinsurance= RIWAC 0%

ATIA - Linkage


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ATIA Linkage

ATIATI

NIC

Bank

NIC

Bank

Buyer Risk

(Wholeturnover)

Buyer Risk(Wholeturnover)

Confiscation;Forex remittance;

Unfair call / action prejudicial;

Commercial default;Must be full business

90% of the claimed value

Rwanda Country

Risk

Benefits to Bank


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Benefits to Bank

Safe entry into the Region; Credit enhanced facilities overcoming the limitations

of traditional securities;

Enhanced income diversification / generation; Develop SMEs and Large Corporate business

diversification into non-traditional destinations

Eastern Europe

African Trade InsuranceAfricas ECA!

An over concentration Buyer Risk


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% of Kenyan Tea by

destination

Pakistan

Egypt

UK

Afganistan

Sudan

Yemen

UAE

Russia

Ireland

Kazakhstan

Poland

IndiaUSA

Somalia

Sri Lanka

y

Diversify whats the risk


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Diversify what s the risk

Entering new markets untested could lead tohigher risks if we are to break into other exportcountries traditional markets!

How can you enter with lower levels of financial costsfor the importer?

What alternative risk management methods could you

call in order to be at a competitive advantage to othersuppliers??


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Seller/Exporter

Buyer/Importer

ATIA Atradius

Credit Insurance

Inquiry /Credit Insurance

.the horses mouth!


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Structured Trade Finance in Africa Rwanda Coffee and Tea Case Studies

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